Real Estate Investment and Development

Student Number -18034547

Subject Name- Real estate Investment and Development

Executive Summary-This report is completely prepared for the University Pensions fund.The capital budget was £250m.The portfolio has set up an investment fund separate from the rest of the pensions fund.The report considered only direct investment in order to get profitable return.The report explained and analysed the portfolio construction and benchmark analysis inorder to get best investment prediction for University Penson fund.

Risk adjusted Return 2.13	Beta 2.36
Return 11.20	Standard deviation 5.4

Investment Report Part (A)

Appendix

Name	Page Number
Introduction	2
Investmet Strategy and Objectives	3
Market Research inUnited Kingdom	4
Market Research (Sector Analysis)	6
Portfolio Construction	9
Portfolio Theory	9
Conclusion	10

Introduction-

1.1 The report has been prepared by head of ceo for the New University Pensions fund to provide them necessary advice regarding the real estate portfolio investment side of the fund. The capital of the investment is £250m.While considering the portfolio, this investment report considered the capital budget up to £250 million with no material change in investment strategy where the proper balance of the risk and return in market has maintained through portfolio diversification. While combining the risk and return, the report considered the past data of several direct property as well as projected outlook, capital market insights with positive return.

1.2 The report outlined the investment strategy, reasoning, assumption as well as objectives of the portfolio based on proposed capital investment.

1.3 With clear investment objectives in line with modern portfolio theory, the report offered brief risk analysis in relation to the portfolio constructed to the University Pension fund.

1.4 The report delivered an analysis of the portfolio which includes the performance and measurement and risk analysis to come up with best advice for the University pensions fund.

2.Investment Strategic and Objectives-

2.1 A strategic approach to property portfolio management has become common where good benchmarks are possible (Baum,2015). This entails analysing the portfolio's structure in comparison to an index, forecasting the portfolio's return and risk, which is often driven by the property form or position, and a buying and selling strategy (Baum,2015). After all, the decision to invest in property is mostly focused on an interpretation of historic risk and return characteristics provided by a sector (Nikifros,2012). Investors who have targeted low risk or core property as an asset class will most likely be looking to repeat the benchmark results with little surprises (Nikiforos,2012). So, the benchmark means comparison of portfolio. Based on data from MSCI website, this report analysed UK domestic portfolio as well as global market performance to provide best prediction for investment return. While considering the report, we prefer to invest on direct property instead of the indirect property. The reason for choosing the direct property cause of high yield return compared to capital budget. The direct property has individual control and has massive data and real estate portfolio. Indirect property like share is dependent on management performance, exchange rate, share market politics, economic and market condition could be fluctuating any time and risky.

2.2 Individuals, families, offices, wealth managers, and some return-seeking institutional investors choose direct investing because the funds' output characteristics may be more in line with the direct market over the short to medium term, implying effective diversification (Baum ,2020).

2.3 The diversification theory refers to a portfolio's incorporation of a variety of volatile assets in order to minimise the risk exposure of a single asset (Nikiforos,2012).So,by using diversification theory, the risk could be shared in multiple assets that means if any of the assets performance falls could be recoverable by other assets. In this report, we choose to spread the risk in residential, office and industrial sector.

2.4 The core objectives of this investment report are to develop the construction of portfolio of New University Pension fund as well as analysis of risk and return by using property diversification theory with clear projection of income return.

3.Market Research United Kingdom as a Real estate investment-

3.1 Housing building has long been recognised as an economic force, not only in the United Kingdom but around the world (Baum,2011). Indeed, housing development was a key component of Keynesian economic policies after World War II because it provided clearly visible employment, especially for the working class (Baum,2011). Housing building was thought to boost the economy's morale (Baum 2011).So, we can say that housing development is important for economic progression of a country.

3.2 For Investment process transparency is important. Transparency is mostly dependent on investment assessment & strategy, rules, regulation, fundamentals, sustainability of investment process.

Figure-1.1 Source -JILL

According to the research 2021, of the JILL for highly transparent country for real estate investment process, we can see that United kingdom is best country for real estate investment compared to other countries.Jill surveys shows that the ‘Highly Transparent' economies – such as France, the Netherlands, Australia, the United Kingdom, Canada, and the United States – as well as high-income Asia Pacific markets like South Korea, Singapore, and Hong Kong SAR – have the highest degree of proptech adoption ((Summary Preview Global Real Estate Transparency Index 2020, 2020). Several less open, broader emerging markets, such as India, South Africa, Brazil, and China, stand out in terms of proptech acceptance (Summary Preview Global Real Estate Transparency Index 2020, 2020).

Figure 1.2 Source- Assets Publishing Service,UK

3.2 Country’s gross domestic product rate is highly linked with the real estate investment. GDP is an estimate rate the investor can assume the economic development and progression of economy . Figure 1.2 states the United kingdom Gross domestic product of the year between 2020 and 2021.The graph shows that the rate of GDP was high in September ,after that there was little decrease in January and reached the peak again in May 2021.

3.3 According to RICS,Lockdown policies enacted to stop the spread of COVID-19 struck the UK especially hard. Between Q4 2019 and Q2 2020, the UK's GDP plummeted by more than 20%, twice as much as Germany and far more than Italy and France.

(Siebrits, 2021) This is due to variations in the calculation of government consumption on GDP, when the UK entered and exited lockdown later than other European countries(Siebrits, 2021). Even though the second quarter saw the greatest quarterly downturn on record, the UK had begun to rebound since the lockout constraints were lifted(Siebrits, 2021).

The UK's recovery was faster than predicted after the first sanctions were lifted(Siebrits, 2021). The UK economy regained over 15% of GDP between April and September, putting it about 8% below pre-pandemic levels in September 2020(Siebrits, 2021). The sectoral view, on the other hand, remained inconsistent, with many sectors still producing at or below their February levels(Siebrits, 2021).

So ,the GDP rate shows economic progression of United Kingdom and rankings in transparent countries encourage us to invest in domestic level.

4Market Research (Sector analysis)-

4.1 In 2021, a poorer real economy will result in lower (and sometimes negative) rental growth, though some sectors will outperform dramatically (Outlook deeply negative for retail and office rents, while industrials set to see a solid recovery, 2021). Since UK fiscal and monetary policy remain very supportive of recovery, UK real estate offers a compelling risk-adjusted return over the long term, especially when compared to the very low (and likely even negative) risk-free rates that we forecast here. (Outlook deeply negative for retail and office rents, while industrials set to see a solid recovery, 2021)

Figure-1.3 Source RICS

The findings of the RICS UK Commercial Property Survey Q3 2020 lead to a wide range of near-term outlooks across industry segments(Outlook deeply negative and retail establishments continue to deal with the pandemic's problems, the manufacturing sector is now showing signs of growth. (Outlook deeply negative for retail and office rents, while industrials set to see a solid recovery, 2021). So, even though in pandemic situation, the economic progression is not praiseworthy, the asset investment in national sector is great.

4.2 Since office demand is closely associated with job growth, UK office take-up dropped to a record low as a result of the UK COVID-19 lockout and is unlikely to return to trend levels in 2021(Siebrits, 2021). Though job growth is expected to be favourable in 2021, the rate of increase is expected to be slow at 1.4 percent. (Siebrits, 2021). London is expected to rebound more slowly than the rest of the UK in terms of jobs(Siebrits, 2021). It won't be until the second half of 2022 that total jobs returns to pre-pandemic peaks (Siebrits, 2021). This is mirrored in our rent projections, which expect a 3% drop in nominal rental rates across the UK office market in 2021(Siebrits, 2021).When we see the past data of return, MSCI states ,the return of retail is dropping tremendously day by day compared to other sector and the main reason for that is the influence of economic downturn cause of Covid 19.Compared to retail, the office, residential and industrial represents high return.

The cumulative return on all properties in 2021 may rise to 5.3 percent(Siebrits, 2021). Forecasts suggest that 2022 will be the peak year for capital gains and overall returns over the survey period, with an All Property rental growth rate of 0.8 percent, which is similar to the 0.9 percent predicted before COVID-19 (Siebrits, 2021).

5 .Portfolio Construction-

Figure,1.4

When good benchmarks are available, a strategic approach to property portfolio management has become popular (Baum, 2015).This includes a review of the portfolio's structure in comparison to the benchmark, return and risk estimates for the portfolio, which are generally broken down by property type or area, and a buying and selling strategy (Baum, 2015). Rental growth and yield movement projections are commonly used at the market, sector, region, city, and property levels (Baum, 2015). These, when input into a discounted cash flow valuation model, will propose market buys and sells — those sectors, cities, and buildings where the risk-adjusted necessary return exceeds the returns on offer, as calculated by the investment manager (Baum, 2015).

5.2 The figure shows that ,we put 50% asset for Industrial sector. The past data shows that the return on investmet is high because of standard economical performance in market.

Source-MSCI,UK,All property return 2014-2020 ,Figure,1.5

Correlation Matrix-3 assets (Residential,Office,Industrial)

	Residential	Industrial	Office
Residential	1	.71	.96
Industrial	.71	1	.77
Office	.96	.77	1

5.3 This correlation matrix shows that ,Residential is closely correlated but industrial and office under correlation matrix presents significant correlation which is based on past historical data.The the matrix presents high expected return.

6.Portfolio Theory-

6.1Modern portfolio theory remains an important technique for calculating the optimal asset percentage in a mixed-asset portfolio and determining “efficient” portfolios from a collection of possible and permissible portfolios(Konrad Finkenzeller, 2010). A portfolio is efficient, according to Markowitz (1952), when it either delivers the lowest risk for a given level of expected return or achieves the highest level of return for a given level of risk (Konrad Finkenzeller, 2010). Efficient portfolios are seen as dominant, suggesting that a reasonable investor would prefer an efficient portfolio over a non-efficient portfolio (Konrad Finkenzeller, 2010). The efficient frontier is made up of these efficient portfolios and can be identified using a mean-variance analysis(Konrad Finkenzeller, 2010).When we ,consider our portfolio on the basis of data collected from MSCI 2014 to 2020,we found the risk adjusted return 2.13.

Return-11.20	Risk Adjusted R- 2.13	Standard Deviation-5.46
	Beta- 2.36

Source- JP Morgan Figure 1.6

6.2 If we consider the 20 years data of asset class ,we can see that ,the annual return on investment is higher in REITS compared to other assets class. Although the investment on gold and oil produced higher return and the rate is almost 7%, the REITS is best for investment compared to other asset.

7.Benchmarking Analysis-

Benchmarking quickly entrenched itself at the centre of the real estate portfolio management process, providing the framework against which performance is measured, with the emergence of U.K. real estate market indices in the mid-1980s (Trevellion,2020). Benchmarks are used for a variety of purposes, including determining asset class weightings, remuneration targets, and the foundation for client investing mandates (Treveliion,2020).

We used MSCI website in order to get reliable data of investment of property.MSCI wesite represents all data regarding the investment as well as other data related rea estate .The investment portfolio represents higher return in industrial sector.Rest of Office and Residential incur medium risk which is better for investment criteria.

8.Conclusion

Modern portfolio theory remains an important technique for calculating the optimal asset percentage in a mixed-asset portfolio and determining “efficient” portfolios from a collection of possible and permissible portfolios (Finkenzeller, 2010).Obtains the highest level of return for a given degree of risk. Efficient portfolios are seen as dominant, suggesting that a reasonable investor would prefer an efficient portfolio over a non-efficient portfolio(Finkenzeller, 2010). The efficient frontier is made up of these efficient portfolios and can be identified using a mean-variance analysis(Finkenzeller, 2010).

Bibliography-

Trevillion, E., 2020. The Use of Benchmarks for Real Estate Portfolio Performance by U.K. Financial Institution. Journal Of Real estate Portfolio Management.,.

www.cambridgeahead.co.uk. 2020. Summary Preview Global Real Estate Transparency Index 2020. [online] Available at: <https://www.cambridgeahead.co.uk/media/1853/jll-global-real-estate-transparency-index-report-summary-june-18-2020.pdf> [Accessed 27 May 2021].

Konrad Finkenzeller, K., 2010. Infrastructure: a new dimension of real estate? An asset allocation analysis. JPIF,.

Siebrits, J., 2021. 2021 UK Real Estate Market Outlook. London: CBRE Research.

Baum, A., 2015. Real Estate Investment ,A strategic Approach. Routledge.

Finkenzeller, K., 2010. Journal Of Proverty Investment and Finance. Infrastructure: a new dimension of real estate? An asset allocation analysi, 28.

www.consensus.co.uk. 2020. Spring 2020 Survey of Independent Forecasts for UK Commercial Property Investment.

Executive Summary-

The report is prepared to carry out site development appraisal to establish the residual land value of the Former Dunmail Primary School,Dunmail Road ,Southmead,Bristol.While doing the report ,we use BSCI data base inorderto get best possible data for pensions fund.This report recognised the importance of the planning policy as well as frame workfor site development.The calculation of the site development appraisal discussed below .Here is the summary-

Name	Amount	% GDV
Gross development Value	£49,229,167	100
Land Bid	£12,312,228	25.01
Construction costs and extra works	£21,411,250	43.49
Capital Profits	£8197,917	16.65
Professional FEES	£2993,510	6.08
Interest on Loans	£4014262	8.15

Appendix

Name Page Number

Introduction	12
Methodology	13
Site APPRAISAL	13
Planning Documents	17
Programme Mix	17
Market Analysis	18
Financial Analysis	19
Conclusion	20

Site Development Appraisal-Part B

Introduction-

1.1 One of the most important stakeholders in sustainable development is the built (Yieu, 2007) .Many studies have been undertaken on the built environment's contribution to sustainable development; however, few have addressed the influence of "building maintenance" on sustainability(Yieu, 2007). Most of the research focuses on novel designs that encourage more efficient use of natural resources while also delivering a pollution-free and environmentally friendly urban setting (Yieu, 2007). When it comes to economic growth, most people think about how these new designs would boost the value of their homes (Yieu, 2007). Unfortunately, there is relatively little debate about the role of current building upkeep to sustainable growth, with the exceptions being limited to environmental concerns (Yieu, 2007).

1.2 The report is about site (Former Dunmail Primary school, Dumail road, Southmead) development which residual land value of the land.

1.3 The report also presents importance of policy and planning of site development appraisal.

1.4 By supporting arguments and analysing calculation we are going to build 150 houses in former Dunmail primary high school site.

2.Methodology-

2.1 We are required to carry out to make a site and development Appraisal report in favour of pension fund inorder to establish the residual land value of the site (Former Dunmail Primary School ,Southmead).

2.2 While making the report ,we followed standard residual appraisal approach.

2.3 We proposed 150 houses mix development scheme which contain both residential and commercial property.

2.4 While doing the inspection, the site was appropriate for residential and commercial development.

2.5 The report covers legal and economic and socio aspects that help the pension fund to decide proper development decision and profit regarding the site.

2.6 This report covers mix use development scheme which is going to provide 75% of residential and 25% commercial property.

2.7 The planning policy and land development appraisal framework in the report is going to give standard evaluation which will help pension fund to decide about the development.

2.8 Many of the social and environmental challenges that industrial societies confront will not be solved unless citizens and organisations rethink how they interact with the environment (Tippett, 2007). As a method of obtaining such new ways of thinking, this study investigates new and more effective approaches to include participatory procedures into ecological planning (Tippett, 2007).

3.Site Appraisal-

3.1 Willkinson and Reed stated that The character of a project is influenced by site selection, which is critical to success (Isaaq, 2010). No amount of good design or advertising will be able to overcome the project's disadvantage if the site is in a bad location or if there is a lack of demand for the accommodations regardless of location (Isaaq, 2010).So site selection is important. We have selected Dunmail Primary school which is located in southmead ,Bristol.

3.2 The Bristol Local Council selected Dunmail Primary school for development project which is located exactly north part of Bristol. The total area is 2.7 hector or 20700 square meter.

Source – Google Figure 1.7

Dunmail Primary School in Map ,source -Digi Map

Dunmail Primary school, Satellite version, source – DIGI map,Figure 1.8

Building Development Site – Former Dunmail Primary School, Southmead ,Bristol.

Size-2.7 Hector ,20700 square meter. It is in the north west region of the Bristol. It is currently proposed for development.

Ownership-Local Authority

Title number-N/A

Current Condition-School Building

Id-URN: 108977, DfE number: 801/2102

Current value – Unknown

Allocation-We are proposing to build lot of trees in this infrastructure as well as we are gonna ensure the proper road ,water facilities .

Monuments- None

Immediate Boundaries- There is a boundaries in the south part of the school which covers the front area of the gate .

Overlooking windows- 35 windows

Flood Risk- Flood map of environmental agency website shows that no flood risk for Dunmail primary school or close area.

Surrounding area- Map

Access status – restricted

Topography- The land is plain,so it’s not going to affect the building layout.

Ecology-Need environmental impact assessment

Wind -N/A

Pollution-N/A

Contamination-N/A

Important features- no need.

3.3 Dunmail Primary school is not far from Clifton suspension bridge and Bristol central zoo. This place could be profitable for business as well. There are lot of restaurants and pubs around there. There are lot of commercial and business centre like retails shop and shopping centres are located in the southern part of school. The big park near the north part of the school is perfect place for recreation.

4.1Planning Documents-

4.1 We got planning permission for mixed house development.The building appraisal we decided to divide between residential and commercial purpose.The residential building we are going to build like ,3 storied house ,3 bed room apartment and 2 bed room apartments.

4.2 The project has been approved by Bristol Local council which is subject to some condition-

· The planning for external wall should be submit to the local planning authority.

· The fuse boxes and electricity enactment need prior approval and subject to inspection

· The noise proof scheme needs prior approval of local planning authority

· The roof installation is subject to inspection of local planning authority

· The internal radiator needs to subject to inspection of local planning authorities.

5Programme Mix –

5.1 The development report of Dunmail Primary consists of mixed housing development. We proposed for residential and commercial development. Primarily we, proposed 150 buildings ,100 buildings for residential and 50 for commercial purpose.

5.2 For the residential purpose ,we proposed to develop 100 homes. We allocated 25 unit of 3 storied building which is popular in Bristol area. For the residential purpose , southmead is very demandable in inner Bristol. Additionally ,we proposed 25 unit 3 bed room apartments,2 bed rom apartments as well as 25 units for affordable homes. Housing concept might serve as a model for mixed-tenure housing that might be replicated throughout the city(Dunmail Housing Scheme, n.d.). This is a crucial site in north Bristol, and it will highlight the Council's commitment to building new homes, establishing diverse and balanced neighbourhoods, and providing houses that meet high design and environmental standards(Dunmail Housing Scheme, n.d.). (Dunmail Housing Scheme, n.d.).

5.3 The commercial space split into 2500 sqm for retail and 2500 sqm for office space .The Bristol City centre iss nor far from Southmead and lot of shopping centre is located near Dunmail road could be ideal place for business.

Dwellings	Market House sale	Affordable sale	Total NUMBER	% Of housing
3 storey	£190000		25	18.7
2 bed room apartments	£250000		25	18.7
3 bed room apartments	£300000		25	18.7
2 bed room apartments		£200000	25	18.7

Commercial	Gross Internal Floor	Annual Rent Flow
Retail	2500sqm	£531,250
Office	2500sqm	£1012,500

6. Market Analysis-

Hopefully, early market research will not only show a developer whether there is effective demand in the market, but it will also show who is most likely to require the space to be developed, as well as who will be the most probable investor after the development is done and let (Millington,2013). Market research should also reveal the type and quality of accommodation required in that user requirements of property Development should have been clearly researched if survey questionnaires have been well designed (Millington,2013). This being so, the results of that research ought to have been considered in the design stage in order to ensure that the developed property fulfils the needs of the market (Millington,2013).

Source-plumpet.uk, Figure 1.9

If we check the average property ,we can say that the price are getting higher day by day.The data shows that ,the Bristol area is better to whole England and Wales.The average property price changed by 9% in 2021 but the whole England the average price increased by 8%.

Source -www.home.uk,Figure 2.1

If we consider the data of Bristol housing selling , we can see that ,detached house was popular compared to other houses.The rate was always higher between the year of 1996-2008,after that there was fall in 2009and tremendously increased and again fall in 2020.

7.Financial Analysis-

Ratcliffe and stubbs stated that the assessment of what can be achieved for a development once completed and let, minus what it costs to produce, is a simple definition of development(March, 2017) .The developer must first determine whether the project is likely to succeed (March,2017). The costs involved in a development include the land, design, construction and all the fees to the others involved in the process (March,2017). There are various questions the developer needs to answer depending upon the information available (March ,2017). These are: • If the development costs and profit margins are known, what is the maximum cost of land that can be absorbed to make the project viable? • How much profit can be made if the costs of the land and construction are known? • How much rental income is required to justify the development? • If the land value and profit are known, what is the most that can be spent on the construction costs? (March,2017).So the building cost and other costs are important.

The report outlined the estimate costs and profit with Gross development value.

Name-	Amount % GDV
Gross Development Value	£49,229,167 100%
Land Bid	£12,312,228 25.01
Construction Costs and extra Works	£21,411,250 43.49
Capital Profits	£8197,917 16.65
Professional Fees	£2993,510 6.08
Interest on Loans	£4014262 8.15

8.Conclusion-

The residual valuation is one of the established methods of property appraisal which assesses the profitability of development proposals (Isaaq,2010). The method calculates the increased capital value of the land due to the proposed development and then deducts the costs of works and the original value of the land and buildings (Isaaq,2010). A profit should be included in the equation to represent the developer's risk and commitment (Isaaq,2010). However, depending on the length of time that development takes, there are a variety of possible outcomes for the developer's profit if a site is purchased at the start of a project (Isaaq,2010). If the value of the development rises dramatically over time, the developer may make an abnormal profit (Isaaq,2010).At the end ,by considering the previous data and calculation we can say that ,the report has provided best development proposal for Dunmail Primary School.

Bibliography

Tippett, J., 2007. Meeting the challenges of sustainable development—A conceptual appraisal of a new methodology for participatory ecological planning.

Yieu, C., 2007. Papers Building depreciation and sustainable development. [online] web.a.ebscohost.com.ezproxy.uwe.ac.uk.

Isaaq, D., 2010. Property Development Appraisal and Finance. Palgrave Macmillan.

ww.democracy.bristol.gov.uk/. n.d. Dunmail Housing Scheme.

Millington, A., 2013. Property Development. Estate Gazzette.

Column1

Industrial Residential Office 0.5 0.3 0.2

2